The number of homes in default is growing everyday. Some people have legitimate financial hardship, divorce, death, illness, job loss but many homeowners are just mad that their home is no longer worth what they paid for it. Some borrowers just walk away from their obligaton for no apparent reason.
I do not deny that it hurts to know the home you bought several years ago is not worth what you paid but what if the reverse was true. What if your home value went up 25% would the bank call your loan due and demand more money? Of course not! You obviously liked the house enough to buy it and many of you planned to live there for many years. So stay the course and know that eventually when we get out of this economic crisis the housing market should right itself.
Written by Mary Beth Harrison, www.dallastexasrealestateblog.com
Reference article…
It is estimated that 14 million homes across the country are currently underwater, and that number could grow to 20 million by 2012 if housing prices fall further – as projected. The high number of homes in a negative equity situation should increase the number of defaults, although many borrowers ultimately decide against walking away due to moral grounds or fear of legal action. See the following article from HousingWire for more on this.
More than 14m borrowers were underwater as of Q110, owing more on a mortgage than the value of the underlying property.
But with a further 10.8% decline in house prices expected relative to Q409 levels, another 6m borrowers are likely fall into negative equity by the end of 2011, according to commentary today by
It makes for 20m underwater borrowers total before 2012.
The presence of negative equity goes hand-in-hand with an increased likelihood of strategic default, as borrowers sometimes may not be willing to pay when the house has lost substantial amounts of value.
The firm noted that, even when strategic default makes economic sense, many borrowers resist on moral and social grounds, as well as from fear of legal consequences. The existence of recourse — when a lender is able to pursue a borrower's other assets — also acts as a disincentive against strategic default.
Deutsche Bank noted 11 states are considered non-recourse — though not all explicitly forbid deficiency judgments on homes or on purchase loans. Underwater borrowers are more likely to default in non-recourse states. The greater the negative equity, the higher the cumulative default rate.
Underwater borrowers in non-recourse states California and Arizona had higher cumulative defaults than recourse states Florida and Nevada across all mark-to-market combined
"Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals," Deutsche Bank researchers said.
"Many existing academic studies model homeowners' default decision based on the theoretical hypothesis that a borrower would exercise a default when it is in-the-money, i.e., when the borrower's house has negative equity. Therefore, a homeowner with negative equity would default even though they can still afford to make their mortgage payments.
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Great information! I’ve been looking for something like this for a while now. Thanks!